“We believe that Democrats are now actively planning for a more realistic Plan B to lift the debt ceiling and prevent a government shutdown,” Evercore ISI analysts Sarah Bianchi—a nominee for a post in the U.S. Trade Representative’s office—and Tobin Marcus wrote in a note Tuesday. “The single most likely outcome at this point is that Democrats will lift the debt ceiling on a party-line basis.”
6. Paying the Price
That Democratic-only option is, however, time consuming and will require lawmakers to act quickly to have a debt limit increase bill ready before Treasury runs out of cash. It requires a series of steps to prepare, including two mega voting sessions on the Senate floor known as vote-a-rama, which typically last all night.
This process would also require Democrats to raise the debt ceiling to a specific threshold, rather than just suspend it like they can do under a bipartisan process. That makes for a politically challenging decision about how much leeway they want to give the federal government to borrow.
If the Democrats aren’t able to proceed in time, only a bipartisan vote could avert default, requiring Republicans to reverse their position.
Even in the case of a brief period of the Treasury failing to make good on U.S. payments owed, “Americans would pay for this default for generations,” Mark Zandi, chief economist at Moody’s Analytics, wrote Tuesday.
Republicans have sometimes proved more likely to cooperate if Democrats offer to discuss limits on spending over time. While no formal proposal has been made, some bipartisan medium-term fiscal framework could boost the chance of a debt-limit suspension.
“There must be a backup plan,” said Senator Ben Cardin, a Maryland Democrat, without specifying what that might be. “There must be the plan B and Plan C and Plan D.”
—With assistance from Sophia Cai, Billy House and Liz Capo McCormick.
This article was provided by Bloomberg News.